BHP and Vale Samarco JV file for bankruptcy in Brazil

The logo of Brazilian mining company Vale SA is seen in Brumadinho, Brazil on January 29, 2019. REUTERS / Adriano Machado / File Photo

RIO DE JANEIRO, April 9 (Reuters) – Samarco Mineracao SA, a joint venture between Brazilian miner Vale SA (VALE3.SA) and BHP Group Ltd (BHP.AX), has filed for bankruptcy to prevent claims from creditors affect its operations, Vale said in a securities filing Friday.

The collapse of a dam at the Samarco mining complex in 2015 killed 19 people and severely polluted the Doce River with mining waste, one of Brazil’s worst environmental disasters. The facility, which resumed production in December, is the subject of significant litigation from bondholders with nearly $ 5 billion in debt.

“The (judicial reorganization) filing is necessary to prevent legal actions already in progress (…) from affecting Samarco’s ability to produce, ship, receive for its exports and to finance the normal course of business. “the company said.

Vale said the security deposit would not impact Samarco’s ability to pay reparations to those affected by the dam failure in 2015. He said out-of-court negotiations with creditors had slowly broken down over time.

The judicial reorganization application, filed in the state of Minas Gerais, is roughly analogous to a Chapter 11 bankruptcy filing in the United States.

Samarco has $ 4.7 billion in financial debt from unrelated parties, Vale said. In the years following the Samarco disaster, Samarco had negotiated with creditors to reach a restructuring agreement. However, those talks slowed down in 2019 after changes to dam regulations in Brazil, which significantly affected operations at Samarco, Vale said.

In 2019, another dam erupted at a mine in Vale in Brazil, killing some 270 people and prompting tougher rules governing mine dams.

A significant portion of the debt is now held by “investors active in the distressed asset market”, rather than by the original bondholders at the time of the disaster, Vale said.

Reporting by Gram Slattery

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